Health Reform and Jobs

Berkeley Blog

Over the last few months, we have heard any number of outrageous claims about the potential impacts of the proposed health care bills (death panels, end to private insurance, etc.). Still, the claim made by Republicans during debate in the house—that the bill would result in a loss of 5.5 million jobs—stands out. They even go so far as to say (see House Republican Leader John Boehner’s website), that their findings are based on a methodology developed by UC Berkeley’s own Christina Romer, Chair of the Council of Economic Advisors. What’s going on here?

The Economic Policies Institute’s Josh Bevans pointed me to Politifact, which does a good job of debunking the claim. It turns out that the number comes from Republican staff of the House Ways and Means Committee. They started with an estimated tax increase on employers from the play-or-pay provision of $300 billion. It is not clear where this number comes from; the CBO estimate is $163 billion over ten years. They treat that number as though it is a direct reduction in GDP for a single year, thereby increasing the projected impact tenfold. To get the total impact on GDP they use a multiplier from a 2007 paper by Christina Romer which explicitly states that the analysis in the paper pertains to tax increases or cuts that change the total spending in the economy. This would be the case, for example, for a tax increase to fund the deficit where there is no corresponding increase in government spending, or for a tax cut to stimulate the economy that was not balanced by a reduction in spending. The paper is very clear that the analysis would not apply to a social insurance program where the increased tax is balanced by an equal increase in output—as with the healthcare act. So to reiterate—they use a methodology that is clearly inappropriate for the case at hand, they start with a cost to employers that is nearly double that of the CBO projections and they inexplicably multiply the results by ten. Than they claim that the analysis was done with a methodology from the Counsel of Economic Advisors—one Congressman actually directly attributed the estimates to the CEA—even as it directly contradicts what Romer wrote in the paper they cite.

In the meantime, the U.S. Chamber of Commerce is looking to hire a “respected economist” to produce a study on the bills and circulate a sign-on letter “saying that the bill will kill jobs and hurt the economy.” You can’t make this stuff up.

Employer requirements play an important role in the health care reform proposals. Requiring larger employers to either provide coverage or contribute to the exchange both helps fund health reform and ensures that reform will not undermine employment-based insurance. Otherwise, firms may be tempted to drop their coverage and shift costs to the public. Mom-and-pop businesses are exempt from the requirement and, in fact, will receive subsidies to help buy coverage.

So, what does the academic literature tell us about pay-or-play provisions and job losses? Studies on Hawaii and San Francisco, which both have employer requirements, have found no measurable impacts on employment. Most economists believe that for workers above the minimum wage, the costs of health insurance are passed on to them over time in the form of lower compensation. The impact of a health requirement of the size under consideration on businesses would be equivalent to a modest increase in the minimum wage. Drawing on the minimum wage and health mandate literature, Philip Cryan found that the job impacts of an employer requirement of 8 percent of payroll, with no exemptions or subsidies for small businesses, would be in the range of 166,000 jobs lost to 55,000 jobs gained. This is before taking into account the many positive impacts of health reform on jobs, small businesses, and the economy as a whole.

Health insurance premiums have more than doubled in the last decade, far outpacing wages and inflation—and are expected to continue to do so absent reform measures. Rising health costs effect business, workers, and every level of government. For workers, they have led to stagnating wages and higher out-of-pocket costs. Large employers are cutting back on benefits, while more and more small businesses are dropping coverage altogether. Declining job-based coverage is putting further financial stress on taxpayer funded public programs.

Workers without health insurance are more likely to skip or delay needed care, less likely to receive treatment for chronic conditions like asthma and diabetes, and are more likely to experience a debilitating health condition. The result is increased absenteeism and exits from the labor force due to disability and decreases in productivity and earnings.

Additionally, many American workers are unwilling to leave their jobs for fear of losing their health insurance. That translates into fewer people becoming entrepreneurs and fewer people pursuing productivity-improving job changes.

The proposed health reforms would significantly expand coverage and take important steps towards slowing the rate of health premium growth. The Counsel of Economic Advisors estimates that the slowing the rate of growth by just 1.5 percentage points would increase GDP by 2 percent over the no-reform baseline by 2020 and 8 percent by 2030—resulting in significant employment gains.